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Corporate Governance, ESG, and Stock Returns around the World

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  • Mozaffar Khan

Abstract

Nonfinancial performance measures, such as environmental, social, and governance (ESG) measures, are potentially leading indicators of companies’ financial performance. In the study reported here, I drew on prior academic literature and the concept of ESG materiality to develop new corporate governance and ESG metrics. The new metrics predicted stock returns in a global investable universe over the tested period, which suggests potential investment value in the ESG signals.Disclaimer: The author is employed by an investment management firm that invests in public equities globally.Important Disclosures: These materials should not be relied on as research or investment advice regarding any stock. There is no guarantee that any forecasts made will come to pass. Causeway Capital Management LLC does not guarantee the accuracy, adequacy, or completeness of such information. Although the author’s information providers, including without limitation MSCI ESG Research LLC and its affiliates (the “ESG Parties”), obtain information from sources they consider reliable, none of the ESG Parties warrants or guarantees the originality, accuracy, and/or completeness of any data herein. None of the ESG Parties makes any express or implied warranties of any kind, and the ESG Parties hereby expressly disclaim all warranties of merchantability and fitness for a particular purpose, with respect to any data herein. None of the ESG Parties shall have any liability for any errors or omissions in connection with any data herein. Further, without limiting any of the foregoing, in no event shall any of the ESG Parties have any liability for any direct, indirect, special, punitive, consequential, or any other damages (including lost profits) even if notified of the possibility of such damages. Editor’s note Submitted 18 June 2019Accepted 30 July 2019 by Stephen J. Brown

Suggested Citation

  • Mozaffar Khan, 2019. "Corporate Governance, ESG, and Stock Returns around the World," Financial Analysts Journal, Taylor & Francis Journals, vol. 75(4), pages 103-123, October.
    • Handle: RePEc:taf:ufajxx:v:75:y:2019:i:4:p:103-123
    DOI: 10.1080/0015198X.2019.1654299
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    Cited by:

    1. Rekha Pillai & Md. Aminul Islam & S. Sreejith & Husam Aldin Al-Malkawi, 2025. "Comparative analysis of environmental, social and governance (ESG) ratings: do sectors and regions differ?," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 29(1), pages 69-109, March.
    2. Angelidis, Timotheos & Michairinas, Athanasios & Sakkas, Athanasios, 2024. "World ESG performance and economic activity," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 93(C).
    3. Dreyer, Johannes K. & Sund, Kristian J. & Tatomir, Mirel, 2024. "Doing good in good times only? Uncertainty as contingency factor of warm-glow investment," Research in International Business and Finance, Elsevier, vol. 71(C).
    4. Farah Mneimneh & Michel Kodsi & Marc Chamoun & Mohammad Basharoush & Seeram Ramakrishna, 2023. "How Can Green Energy Technology Innovations Improve the Carbon-Related Environmental Dimension of ESG Rating?," Circular Economy and Sustainability, Springer, vol. 3(4), pages 2183-2199, December.
    5. Gong, Xiaomin & Xie, Fei & Zhou, Zhongsheng & Zhang, Chenyang, 2024. "The enhanced benefits of ESG in portfolios: A multi-factor model perspective based on LightGBM," Pacific-Basin Finance Journal, Elsevier, vol. 85(C).
    6. Yang, Bai & Huang, Jingfeng & Chen, Yinzhong, 2025. "The relationship between ESG ratings and digital technological innovation in manufacturing: Insights via dual machine learning models," Finance Research Letters, Elsevier, vol. 71(C).
    7. Ping‐Chuan Jiang & Gen‐Fu Feng & Hai‐Jie Wang & Chun‐Ping Chang, 2024. "CSR from different perspectives: The global ESG indexes updated," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 31(5), pages 4694-4714, September.
    8. Benchora, Inessa & Galanti, Sébastien, 2024. "Verified carbon emissions and stock returns in the EU Emissions Trading System," Energy Policy, Elsevier, vol. 193(C).
    9. Jiang, Liqun & Chang, Zhongyuan & Yao, Wenxin & Huang, Leyi & Zhou, Shumei, 2024. "Transcend local for global: ESG as a legitimacy signal in the global expansion of emerging multinational enterprises," Finance Research Letters, Elsevier, vol. 69(PB).
    10. Jonah Tyan & Shih-Ching Liu & Carol Yeh-Yun Lin & Tien-Yu Chang, 2025. "Unlocking the Connection between Corporate Social Responsibility Strategy and Firm Performance: Unveiling Mediating and Moderating Effects," Journal of Business Ethics, Springer, vol. 197(3), pages 597-611, March.
    11. Lu, Xiaomeng & Zhang, Xianjun & Guo, Fusen & Li, Feng, 2024. "Evaluating ESG Investment Profitability: From the Perspective of Sophistication in Investment Decision-Making," Finance Research Letters, Elsevier, vol. 69(PA).

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